Thailand’s baht fell toward a three-year low and government bonds declined after a surprise drop in exports added to concern Southeast Asia’s second-largest economy will struggle to emerge from a recession this quarter.

Overseas sales decreased 1.5 percent in July, the third decline in a row and less than the 0.8 percent gain forecast by economists surveyed by Bloomberg, a report showed yesterday. The country will post a current-account deficit of $550 million in July, according to another Bloomberg survey before data due Aug. 30, while figures released last week showed the nation entered a recession for the first time since 2009.

“The trade data boosted concern about the possibility of economic recovery in the third quarter,” said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc. in Tokyo. “In addition, the nation has been seeing a deficit in the current-account balance, putting downward pressure on the baht for a while.”

The baht dropped 0.5 percent to 32.09 per dollar as of 8:45 a.m. in Bangkok, according to data compiled by Bloomberg. The currency touched 32.17 on Aug. 22, the weakest level since Aug. 5, 2010, and has lost 3.2 percent this quarter. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined seven basis points, or 0.07 percentage point, to 7.13 percent.

Gross domestic product decreased 0.3 percent in the three months through June from the previous quarter, when it contracted 1.7 percent, the National Economic and Social Development Board said Aug. 19. The agency cut its 2013 expansion forecast to between 3.8 percent and 4.3 percent from an earlier estimate of 4.2 percent to 5.2 percent.

Global funds sold $1.2 billion more Thai bonds than they bought this month through yesterday and pulled a net $1.1 billion from equities, official data show.

The yield on the 3.625 percent sovereign notes due June 2023 rose four basis points to 4.19 percent, data compiled by Bloomberg show.

Thailand’s central bank voted unanimously yesterday to cut its 2.75% base rate by a quarter of a percentage point on Wednesday in an attempt to stem a sharp rise in the baht. Thailand is joining other Asian countries in setting a currency-devaluing precedent that may leave other emerging economies with little choice but to follow suit.

A measure of economic easing in the US and austerity in Europe has sent foreign investors to Asia seeking better returns and pumping up the value of Thailand’s baht, which in April hit its strongest level against the dollar since the 1997 Asian financial crisis.

What does this mean for Thailand?

This influx of foreign funds is causing big problems for Thailand, with exporters worried that their goods will become too expensive. Japanese President Shinzo Abe’s has already put in to place moves to devalue the yen which have already made things difficult for his Asian neighbors. Last week the Thai government cut its export growth forecast from 11% to 7.6% for 2013 and Thailand’s finance minister has been publicly piling pressure on the bank’s central governor to take further actions.

The Bank of Thailand is also considering additional controls, including fees on capital gains made by foreign bond holders and minimum holding periods for foreign purchasers, to discourage the flow of foreign money coming in to Thailand.Should Thailand succeed in devaluing the baht the foreign capital that has been flowing into the country may go elsewhere–the Philippines, for example, or South Korea which has already been damaged by Japan’s currency devaluation. China, with its devalued currency may also end up the benefactor of much of the foreign funds.

Thailand’s baht was set for its fourth weekly decline, the longest losing streak in three months, and bonds fell before US jobs data that may influence expectations for when the Federal Reserve will rein in stimulus.

The baht dropped to a three-year low ahead of data today that may show US employers added 180,000 jobs in August after an increase of 162,000 the previous month, according to the median forecast in a Bloomberg survey of economists. Global investors sold US$31 million more Thai equities than they bought this week through yesterday, exchange data show, amid concern the US is moving closer to a military strike against Syria.

“The biggest focus in the market now is the US employment data to assess the outlook for the Fed’s reduction in stimulus,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. “Emerging-market currencies and assets are under downward pressure and such severe conditions will probably continue for a while. Syria tensions are adding to weak sentiment.”

The baht lost 0.7 percent this week and 0.2 percent today to 32.37 per dollar as of 8.38am in Bangkok, according to data compiled by Bloomberg. The currency touched 32.41 earlier, the weakest level since July 2010.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 32 basis points, or 0.32 percentage point, to 7.53 percent this week. The gauge was little changed today.

The US Fed will start to slow its $85 billion a month of bond purchases at its Sept 17-18 meeting, according to 65 percent of economists surveyed by Bloomberg last month. The US Senate Foreign Relations Committee voted 10-7 this week in favour of a resolution authorising limited action against Syria.

The yield on Thailand’s 3.625 percent sovereign bonds due June 2023 rose 10 basis points from a week ago and two basis points today to 4.42 percent, data compiled by Bloomberg show. That is the highest level for a benchmark 10-year note since November 2009.

The baht climbed to a three-week high and bonds rose as overseas investors added to their holdings of the country's assets on optimism China's economy is gaining traction.

The baht advanced for a fifth day on Thursday, the longest winning streak since January, after global funds boosted holdings of Thai stocks by more than US$100 million on each of the last two days, the biggest net purchases since June 28.

Chinese Premier Li Keqiang said on Wednesday that Asia's largest economy can achieve its main targets this year, bolstering the outlook for Thai exports to its biggest market.

"Risk sentiment is improving and funds are flowing into the nation, supporting the baht," said Tohru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc in Tokyo. "But I see this as a temporary rally in a weak market environment."

The baht appreciated 0.8% to 31.74 per dollar as of 9.07am in Bangkok, the strongest level since Aug 21 and the biggest gain in almost three weeks, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped 16 basis points to 7.59%.

Foreigners turned net buyers of Thai debt on Wednesday for the first time in a week, purchasing 7.5 billion baht, the most since July 30, according to the Thai Bond Market Association.

China's export growth accelerated to 7.2% in August from 5.1% the previous month and industrial production grew 10.4% following a gain of 9.7%, official reports showed the past week. The nation bought 11.4% of Thai goods shipped overseas in the first seven months.

The yield on Thailand's 3.625% sovereign bonds due June 2023 declined one basis point, or 0.01 percentage point, to 4.35%, data compiled by Bloomberg show.

The baht was poised for its best week in five months as foreign investors increased their holdings of the nation’s assets amid optimism that a global economy recovery is brightening the outlook for Asian exports.

The currency touched its strongest level in more than three weeks as exchange data show global funds bought US$310 million more Thai equities than they sold in the first four days of this week, set for their biggest weekly net purchase since November.

US retail sales rose 0.5% in August after a 0.2% gain in July, according to a Bloomberg survey of economists before data due today. The Federal Reserve may cut its monthly bond purchases by $10 billion at its Sept 17-18 policy meeting, a separate survey showed.

“We saw quite a sharp appreciation in the baht because of the inflows,” said Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank. “But gains will probably be short-lived and we have been recommending exporters wait” to buy the baht, she added.

The baht jumped 1.3% this week, the most since the five-day period ended April 19, to 31.83 per dollar as of 8:50 am in Bangkok, according to data compiled by Bloomberg. The currency fell 0.1% today and earlier reached 31.58, the strongest level since Aug 20.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, climbed 18 basis points, or 0.18 percentage points, to 7.88% this week. The gauge fell 11 basis points on Friday.

Overseas investors poured a net $381 million into Thai debt this week through Thursday, according to the Thai Bond Market Association.

Downward pressure on the baht will persist over the next few months given the prospect of the Fed’s tapering, and until confirmation of an improvement in Thailand’s balance of payments in the third quarter, Goldman Sachs Group Inc. said in a research note yesterday. The bank sees the currency at 33 per dollar in three months, weaker than its previous forecast of 31.3.

The yield on Thailand’s 3.625% sovereign bonds due June 2023 declined three basis points from a week ago to 4.37%, data compiled by Bloomberg show. The rate rose one basis point on Friday.

The baht rose the most since 2007 and government bonds climbed after the United States Federal Reserve unexpectedly refrained from cutting monetary stimulus that has spurred demand for emerging-market assets.

The MSCI Asia-Pacific Index of shares rose 1.3% after the Federal Open Market Committee said it wants to see more evidence of a recovery in the world’s largest economy before starting to taper its US$85 billion a month of bond purchases. Economists surveyed by Bloomberg had forecast the Fed would reduce the stimulus by $5 billion.

The baht jumped 1.8%, the most since January 2007, to 31.1 per dollar as of 8.17am in Bangkok, according to data compiled by Bloomberg. It reached 31.055 earlier, the strongest level since July 26. One-month implied volatility, a measure of expected moves in the exchange rate used to price options, dropped eight basis points to 7.9%.

"There is a big rebound in reaction to the Fed," said Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank Pcl. "I would say it's very dovish. But even though the Fed didn't taper this time" they will do so eventually, she said.

Fed Chairman Ben S. Bernanke said paring the stimulus could still start this year should data confirm the Fed's "basic outlook." The US will release jobless claims and existing home sales reports later Thursday.

Global funds bought $432 million more Thai equities than they sold this month through yesterday and pumped a net $884 million into government bonds, official data show.

The yield on Thailand's 3.625% sovereign bonds due June 2023 fell 12 basis points, or 0.12 percentage point, to 4.11%, data compiled by Bloomberg show. That was the biggest drop since July 9.

Thailand's baht headed for its first weekly loss in three on concern the country's recession will deter foreign inflows. Bonds advanced for a third week.

The currency weakened on Friday as Barclays Plc cut the country's 2013 economic growth forecast to 2.5% from 3.5%. The lender cited a domestic credit crunch, waning stimulus and lack of confidence after Southeast Asia's second-largest economy shrank in the first two quarters, while exports fell for three months through July.

Bank of Thailand Governor Prasarn Trairatvorakul said the central bank is concerned about sluggish private demand and labour shortages.

The baht dropped 0.4% this week to 31.25 per United States dollar as of 9.37am in Bangkok, according data compiled by Bloomberg. The currency fell 0.2% on Friday and has retreated 1.2 percent from a two-month high of 30.88 on Sept 20 that followed the US Federal Reserve decision to not reduce its record stimulus.

"The economy is likely to remain on the downtrend in the second half due to the slowdown in exports," said Thammarat Kittisiripat, an economist in Bangkok at TMB Bank Pcl. "The baht will depreciate and fund outflows in the short term will continue."

One-month implied volatility, a measure of expected swings in the exchange rate used to price options, decreased 37 basis points from a week ago to 7.46%. The gauge dropped 19 basis points, or 0.19 percentage point, on Friday.

Stock Outflows

The baht is likely to underperform its Southeast Asian peers, such as Malaysia's ringgit and the Philippine peso, given modest economic growth and weakening external balances, Barclays said in the report. It will fall to 31.5 per dollar by March 31 and 31.75 by June 30, the United Kingdom lender forecasts.

Overseas funds sold $211 million more local stocks than they bought this week, according to exchange data, taking net sales this year to $3.3 billion. The benchmark SET Index has declined 3.5% since Sept 20.

The yield on the 3.625% bonds due June 2023 fell 11 basis points this week to 3.91%, data compiled by Bloomberg show, following a 37 basis points decrease last week that was the biggest drop since August 2011. The rate increased five basis points on Friday.

Thailand’s baht gained, extending a rebound from last month’s three-year low to 4.2 percent, as U.S. lawmakers’ failure to resolve a budget impasse damped demand for the dollar. Government bonds advanced.

President Barack Obama said he was “exasperated” with Republican lawmakers, while House Speaker John Boehner said Obama refused to negotiate in a meeting with Congressional leaders. China’s non-manufacturing purchasing managers’ index rose to a six-month high of 55.4 last month, data showed today. Thailand’s exports climbed in August, snapping three months of declines, and the current-account balance showed a surplus for the first time since March, according to official figures.

“With the problem in the U.S., investors don’t want to buy the dollar,” said Hideki Hayashi, a researcher at the Japan Center for Economic Research in Tokyo. “Asia, including Thailand, will be a beneficiary of the recovery in China and other regions through exports.”

The baht rose 0.4 percent to 31.17 per dollar as of 9:20 a.m. in Bangkok, according to data compiled by Bloomberg. One-month implied volatility, a measure of expected swings in the exchange rate used to price options, increased one basis point, or 0.01 percentage point, to 7.43 percent.

Thailand’s overseas sales will recover in the fourth quarter while the government is concerned that the partial U.S. government shutdown may cause foreign-exchange volatility, Finance Minister Kittiratt Na-Ranong said yesterday.

Shipments (THCTEXPY) rose 3.9 percent in August from a year earlier after a decline of 1.5 percent the previous month, a customs report showed on Sept. 26. The country posted a current-account surplus of $1.3 billion for the month, following a deficit of $1.6 billion in July, according to central bank data. China is Thailand’s largest overseas market, with a share of 11 percent of goods shipped in the first eight months of this year.

The yield on the 3.625 percent bonds due June 2023 fell two basis points to 3.83 percent, according to data compiled by Bloomberg.

Thailand's baht rose to a two-week high, tracking gains in regional currencies, after the United States moved toward ending a budget impasse. Bonds were little changed.

The Senate voted 81-18 to halt the shutdown that began Oct 1 and raise the US debt limit. The House of Representatives will also vote on the agreement, which is aimed at preventing the country's borrowing authority from lapsing on Thursday.

The baht is benefiting as the fiscal standoff in Washington over the past four weeks probably means the Federal Reserve will delay cutting stimulus, said Kampon Adireksombat, a senior economist at Tisco Securities Co in Bangkok.

The baht strengthened 0.3% to 31.164 per US dollar as of 8.24am in Bangkok, according to data compiled by Bloomberg. It touched 31.145 earlier, the strongest level since Oct 2. The currency has rallied 0.4% in October after weakening 6.5% in the six months through September.

"It's good news for global markets, not only for Thailand, as uncertainty has somewhat subsided," Adireksombat said. "The baht is supported by recent improvements in the current account and exports."

Overseas sales rose 2.5% in August from a year earlier, after decreasing 1.3% in July, the government reported Sept 30. Thailand recorded a $1.3 billion current-account surplus in August, the first excess since March.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, dropped two basis points, or 0.02 percentage point, to 7.04%.

The yield on the 3.125% bonds due December 2015 was steady at 2.9%, data compiled by Bloomberg show. The rate has dropped nine basis points this month.

The Bank of Thailand is capable of preventing the baht from too much fluctuation, Somchai Sajjapongse, director general of the Fiscal Policy Office, said on Friday.

The baht’s appreciation for two days in a row, to stand at 31.03 baht to the US dollar on Friday morning, was boosted by the political settlement in the US on the federal budget and debt ceiling, he said.

Even though the US problems had not yet been really resolved, as the debt ceiling was extended only to February 2014, this had made global economies feel more comfortable, he added.

Mr Somchai said his office, the Office of the National Economic and Social Development Board and the central bank had assessed the situation and prepared necessary measures to deal with any possible negative consequences caused by capital inflow or outflow.

The conflict settlement in the US might trigger foreign investment inflow to Thailand and strengthen the value of the baht currency, but that was not a problem of concern as the central bank had already prepared any needed measures, he said.

Thailand also has US$170 billion in foreign reserves, sufficient to deal with any possible situation. At this stage the baht is not too strong and there is no need for intervention by the central bank, he said.

Asked about speculation the US Federal Reserve would scale down its quantitative easing measure in the first quarter of next year, Mr Somchai said it would be a good development.

It would show that the US economy is recovering and monetary measures to stimulate economic growth were no longer needed. When the US economy recovers, it would boost Thailand’s exports even as it also triggers a foreign investment outflow, affecting the baht's value, he said.

The Thai currency should move in the range of 30.80-31.20 per US dollar next week, as the market will fall under the influence of economic indicators in several countries, said Kasikorn Research Centre.

Next week, to be released in the US includes the non-farm payroll in September, consumer confidence index in October, durable goods orders and home sales.

Thailand’s preliminary trade figures for September will also be released as well as the Bank of Thailand’s revised economic forecast for 2013.

Early last week, the baht strengthened to 31 per US dollar as the world awaited good news on debt ceiling talks in the US. It ended at 31.04 last week, compared to 31.25 in the previous week.

Government bonds rose, pushing the 10-year yield to the lowest level in three months, as the central bank prepares to cut its economic forecasts. The baht was little changed.

The economy may grow 3.5% to 4% this year and 4% to 5% in 2014, Moody's Investors Service said in an Oct 22 note.

The Bank of Thailand (BOT) will announce its revised forecasts for gross domestic product and exports tomorrow, the monetary authority said on Oct 16. Manufacturing in China, Thailand's biggest export market, expanded more than anticipated this month, according to a preliminary reading from HSBC Holdings Plc and Markit Economics on Thursday.

"The market is a bit wary before the BOT announcement, even though we got positive PMI data in China," said Nalin Chutchotitham, a Bangkok-based analyst at Kasikornbank Pcl.

The yield on the 3.625% bonds due June 2023 fell three basis points, or 0.03 percentage point, to 3.808% as of 9.15am in Bangkok, data compiled by Bloomberg show. That is the same level reached on Oct 18, which was the lowest since July 23.

The country does not have a cash shortage and the central bank is absorbing about 600 billion baht (US$19.2 billion) of excess cash from the overnight market, BOT Governor Prasarn Trairatvorakul said on Tuesday. A recovery in export markets may support growth in 2014, Moody's said. China bought 11% of Thai shipments in the first half of 2013, government data showed.

The baht traded at 31.167 per dollar in Bangkok versus 31.151 on Oct 22, according to local prices compiled by Bloomberg. Financial markets were closed on Wednesday for a holiday.

BANGKOK, Oct 25 – The Bank of Thailand (BoT) has predicted volatility in the money market due to the ongoing risk from the US extension of its debt ceiling.

Pongpen Ruengvirayudh, BoT deputy governor for monetary stability, said there were periods when the Thai baht dropped by 7-8 per cent though it had never before slid down 10 per cent.

It cannot be predicted whether the US will extend the debt ceiling after the February 7, 2014 deadline but the BoT will keep sufficient foreign reserves to cope with the possible baht volatility, she said.

The Thai currency will be maintained at a level acceptable to Thai business operators and to prevent severe impact from foreign capital outflows, she said.

Ms Pongpen said the BoT will launch its Thai Direct Investment (TDI) webpage to provide one-stop information to investors and to encourage more Thai business operators to invest abroad.

Thai investors have invested at a total of US$5.5 billion in the first eight months of this year, a slight decrease from the same period last year at US$7.8 billion.

Thailand's baht headed for a weekly decline before a government report that economists forecast will show a slowdown in export growth. Government bonds advanced.

Overseas sales rose 0.5% in September from a year earlier, compared with 3.9% in August, according to the median estimate in a Bloomberg survey before data due Friday.

The Bank of Thailand will revise its expansion forecast for Southeast Asia’s second-biggest economy at 2.30pm local time. The Ministry of Finance cut its 2013 growth projection to 3.7% from 4.5% last month.

The baht fell 0.3% this week to 31.143 per United States dollar as of 9.11am in Bangkok, according to data compiled by Bloomberg. The currency was little changed on Friday and has risen 0.5% this month, paring its loss this year to 1.8%.

"The market expects to see a lower gross domestic product number so we may see a little reaction to that," said Nath Wongsaroj, a senior vice president at Mizuho Bank Ltd in Bangkok. The authorities are probably concerned that "a strong currency will affect exports," he said.

One-month implied volatility, a measure of expected moves in exchange rates used to price options, fell 26 basis points, or 0.26 percentage point, from a week ago to 6.28%. The gauge declined six basis points on Friday.

The yield on the 3.45% bonds due March 2019 dropped eight basis points this week to 3.48%, data compiled by Bloomberg show. The yield rose one basis point on Friday and closed at a four-month low of 3.47% on Thursday.

Thailand's baht dropped to a seven-week low and bonds fell as anti-government protests sparked by an amnesty bill dim the outlook for the economy and prompt overseas investors to pull funds from the country's assets.

The demonstrations against the bill granting amnesty for political offences are beginning to impact the economy, with tourism and investor confidence the most affected, Bank of Thailand governor Prasarn Trairatvorakul said at a seminar in Bangkok on Sunday. The Senate is scheduled to begin voting on the legislation at 10am on Monday. Most emerging-market currencies in the region fell as improved United States jobs data boosted speculation the Federal Reserve will cut stimulus this year.

"While external factors are dollar-positive, Thailand's growing political risk gives more reasons for foreigners to stay away from Thai assets," said Koji Fukaya, chief executive officer and currency strategist at FPG Securities Co in Tokyo. "The impact on the economy is a major concern at this point. Investors are cautious about the baht and the assets."

The baht depreciated 0.4% to 31.61 per dollar as of 8.46am in Bangkok and reached 31.63, the weakest level since Sept 19, according to data compiled by Bloomberg. The currency dropped 0.9% last week.

One-month implied volatility in the baht, a measure of expected moves in exchange rates used to price options, climbed 19 basis points, or 0.19 percentage point, to 6.06%.

Fund Outflows

Global funds pulled a net $876 million from Thai bonds and equities this month through Nov 8, official data show. The SET (SET) Index of shares slid in each of the last three weeks, sliding 1.7% to 1,405.03 in the period ended Nov 8.

Thai police said they will tighten security around the country's parliament in Bangkok on concern protesters will use Monday's Senate vote on the amnesty bill as a pretext to incite violence and destabilizse the government. “Groups will try to step up protests and create chaos," police spokesman Piya Uthayo said on Sunday, adding that authorities would not use force to disperse the rallies unless demonstrators threatened to enter restricted areas.

Wells Fargo's Advantage International Bond Fund has sold its holdings of Thai sovereign bonds on concern uncertainty surrounding the fate of the government's amnesty bill will deter fund inflows, Lauren van Biljon, a London-based analyst for the fund, said in a Nov 5 interview.

The yield on the 3.625% bonds due June 2023 increased nine basis points to 4.06%, data compiled by Bloomberg show. It was headed for the highest close since Sept 18.

Thailand's baht fell to a two-month low and government bonds declined after the minutes of the US Federal Reserve's October meeting showed stimulus could be cut in the "coming months".

The baht dropped the most in almost two weeks amid concern political unrest in Thailand will subdue economic growth. The Constitution Court ruled against the government's attempt to establish a fully elected Senate on Wednesday, saying the change would undermine its role as a check-and-balance on the lower house. Supporters and opponents of the government called for separate rallies on Nov 24.

"The market's interpretation is that the timing of the tapering is brought forward, which is negative for emerging-market currencies," said Pareena Phuangsiri, a Bangkok-based analyst at Kasikornbank Plc. "For domestic issues, there seem to be big protests this weekend and investors are still worried about the political risk in Thailand, weighing on the baht."

The baht depreciated 0.5%, the most since Nov 8, to 31.787 per United States dollar as of 9.01am Thursday in Bangkok, according to data compiled by Bloomberg. It touched 31.810, the weakest level since Sept 17, One-month implied volatility, a measure of expected moves in the exchange rate used to price options, fell three basis points to 5.84%.

Taper Talk

The Fed expects economic data to signal continued improvement in the job market and "thus warrant trimming the pace of purchases in coming months,” according to the minutes released on Wednesday. Fed Bank of St Louis President James Bullard also stoked tapering speculation, saying a reduction in bond buying is possible in December.

Southeast Asia's second-largest economy grew 2.7% last quarter, the slowest pace since the first three months of 2012, official data showed Nov 18. The government cut its 2013 expansion forecast the same day to 3% from a range of 3.8% to 4.3% projected in August.

The yield on the 3.625% sovereign bonds due June 2023 increased four basis points, or 0.04 percentage point, to a two-month high of 4.17%, data compiled by Bloomberg show.

Thailand's baht fell to a 10-week low and the stock index headed for its worst close in two months after foreign funds pulled money from local assets amid concern political tension will intensify and harm growth.

Anti-government protests spread to military bases, government offices and television stations on Monday after more than 100,000 people joined rallies on Sunday against Prime Minister Yingluck Shinawatra. Global funds pulled a net US$2.1 billion from Thai bonds and equities this month through Nov 22, official data show.

Signs the United States Federal Reserve will taper stimulus also contributed to a 2.5% drop in the baht and a 35 basis point increase in the 10-year bond yield in November.

The baht fell 0.4% to 31.94 per dollar as of 10.06am in Bangkok, according to data compiled by Bloomberg. It touched 31.97, the weakest level since Sept 13. The SET Index (SET) of shares slumped 0.9% to 1,347.32, heading for its lowest close since Sept 6, and the yield on the 3.625% notes due June 2023 climbed eight basis points to 4.29%.

"Investors want to stay away from Thailand amid concern the protests will intensify or lead to violence again like last time," said Shigehisa Shiroki, chief trader on the Asian and emerging-markets team at Mizuho Bank Ltd in Tokyo. "Risk sentiment wasn’t strong to begin with due to the Fed’s tapering talk, and the political concern encouraged investors to take some money out from Thailand."

Amnesty Bill

Government opponents started street rallies in Bangkok last month to oppose legislative efforts that they said would benefit Prime Minister Yingluck’s brother, Thaksin Shinawatra, who was ousted as premier in a 2006 coup and has lived in self-imposed exile overseas since fleeing graft charges in 2008. The Yingluck administration has struggled to contain weeks of protests against a bill that would have provided amnesty for most political offences stretching back to the 2006 coup and a separate move to make the senate fully elected.

The purpose of the demonstrations has switched in the past week from opposing those legislative efforts to ending "suffering under the rule of Thaksin and his people," Suthep Thaugsuban, a former member of the opposition Democrat Party who resigned this month to lead the protests, said on Sunday.

"The government has instructed police and all security officers to handle the situation gently, based on international practices, so the demonstration won't be used as a tool by people who want to make changes in a non-democratic way," the premier said on Sunday on her official Facebook page, remarks that were confirmed by her office.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, increased six basis points, or 0.06 percentage point, to 6.08%.

Thailand's economy grew by 2.7% in the third quarter from a year earlier, the slowest pace since the first three months of 2012, official data show. The government cut its 2013 expansion forecast to 3% last week, from an earlier projection of as much as 4.3%.

The Thai baht has weakened below 32 per US dollar on Wednesday amid protests in Bangkok.At the open, it was 32.08 per dollar, weakening by 0.25 per cent from yesterday and 3.05 per cent from the end of October.

It also weakened 0.34 per cent and 0.22 per cent against the euro and Japanese yen.

The currency is now traded at a two-month low, as the Finance Ministry could not raise as much as expected from bond sale. Yesterday, the ministry sold only Bt37 billion of government-backed bonds.

According to the Public Debt Management Office, the bonds were also sold at a yield that was higher than market rates.

The baht yesterday fell to 32.110 per dollar, the weakest level since September 11. It managed to climb above the $/Bt32 level at the close.

Thailand's baht rose to a two-week high after Prime Minister Yingluck Shinawatra dissolved parliament to defuse anti-government protests that are now in their second month in Bangkok.

Protest leader Suthep Thaugsuban repeated a call for Yingluck and her ministers to resign within three days or face renewed anti-government demonstrations. No rallies have been planned in Bangkok on Wednesday. The United States dollar's 14-day relative strength index versus the baht dropped to 57 from as high as 81 last week. A level above 70 suggests to some traders the Southeast Asian currency was oversold and poised to change direction.

The baht climbed 0.3% to 31.985 per dollar as of 9.32am in Bangkok from Dec 9, according to data compiled by Bloomberg. The currency reached 31.95 earlier, the strongest level since Nov 25, and has rallied 0.9% in a week. Onshore markets were closed on Tuesday for a public holiday.

"The baht got some boost as the tension eased in the very short term due to the dissolution of parliament," said Toru Nishihama, an economist covering emerging markets at Dai-ichi Life Research Institute Inc in Tokyo. "The baht was also in the oversold area and, technically, it was about time to see some rebound. But gains may be limited as uncertainties surrounding Thai politics are still lingering."

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, declined three basis points, or 0.03 percentage point, to 6.78%.

Growth Risks

His Majesty the King endorsed the dissolution of parliament, and elections will be held on Feb 2, according to a royal decree.

The current pullback in the dollar against the baht is a good opportunity to accumulate a position to bet on the Southeast Asian currency's decline, Nomura Holdings Inc. Singapore-based strategists Craig Chan and Wee Choon Teo said in a research note on Tuesday, citing the risks to growth from the deteriorating political situation. The economy grew 2.7% in the third quarter from a year earlier, the slowest pace since the first three months of 2012, official data show.

The yield on the 3.625% bonds due June 2023 was little changed at 4.01%, data compiled by Bloomberg show. The government will auction 8 billion baht ($250 million) of notes due 2061 and 20 billion baht of securities maturing 2019 at 10am local time.

Thailand’s baht had its biggest weekly decline in four months and government bonds fell after the Federal Reserve announced it would reduce stimulus that has fuelled demand for emerging-market assets.

The currency touched a three-year low today as anti- government protesters rallied on the streets of Bangkok to attract support ahead of a major demonstration planned for Dec 22. The main opposition Democrat Party will meet tomorrow to decide whether to boycott the general election on Feb 2. The Fed said this week it will cut its monthly bond purchases to $75 billion in January from $85 billion previously.

“The depreciation in the baht was triggered by the Fed’s tapering,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp. in Bangkok. “In the short-term, the baht will remain under a gradual weaker bias. Thailand’s political uncertainty will probably make it hard for investors to buy Thai assets.”

The baht fell 1.8 per cent this week to 32.63 per dollar as of 3:38pm in Bangkok, according to data compiled by Bloomberg. That’s the most since the period ended Aug 23. The currency, which dropped 0.5 per cent today, touched 32.65 earlier, the weakest level since June 2010. It has lost 4.3 per cent this quarter.

The Fed will taper its bond buying in $10 billion increments over the next seven meetings before ending the program in December 2014, according to a Bloomberg survey of 41 economists yesterday.

The baht’s weakness is in line with the region after the Fed’s move while the central bank is prepared for any possible impact, Bank of Thailand spokeswoman Roong Mallikamas told reporters today. Political uncertainties may affect the currency, she added.

Capital is expected to flow out of Thailand because of the reduction in stimulus, Arkhom Termpittayapaisith, secretary-general of the National Economic and Social Development Board, said in national television broadcast yesterday. Global funds pulled a net $178 million from Thai bonds and equities in the first four days of this week, official data show.

The yield on the 3.625 percent bonds due June 2023 rose one basis point this week to 4.04 percent, data compiled by Bloomberg show. The rate was little changed today.

Thailand’s baht fell to the weakest level in more than three years on concern prolonged political unrest will damp investment and hurt the economy. Bonds gained.

More than 1,000 anti-government protesters have surrounded Prime Minister Yingluck Shinawatra’s home in Bangkok, as she criticised the opposition Democrat party’s plan to boycott a Feb 2 election.

Suthep Thaugsuban, who is leading the demonstrators, has vowed to thwart the polls, which were announced after Yingluck dissolved the parliament on Dec 9 amid mass protests. The Thai currency has lost 4.9 percent in the past two months as the main stock index dropped 7.9 percent.

“Investors aren’t buying the Thai baht if this political situation continues,” said Kozo Hasegawa, a foreign-exchange trader at Sumitomo Mitsui Banking Corp. in Bangkok. The baht may gradually weaken toward 32.9 per dollar as the political conflict threatens the economy, he said.

The baht depreciated 0.4 percent today to 32.75 per dollar as of 9.55 am in Bangkok, according to data compiled by Bloomberg. That’s the weakest level since June 7, 2010.

Thailand Election Commission secretary-general Puchong Nutrawong said Dec 21 the boycott would not affect the vote. Southeast Asia’s second-biggest economy expanded 2.7 percent in the third quarter, the least in more than a year.

As the effectiveness of the election to end the street protests is now in doubt, political certainty looks set to last longer and the baht will come under more pressure, Credit Agricole CIB’s Hong Kong-based analyst Anthony Lam wrote in a research note today.

One-month implied volatility in the baht, a measure of expected moves in the exchange rate used to price options, fell 10 basis points, or 0.1 percentage point, to 6.14 percent.

Government bonds gained. The yield on the 3.625 percent notes due June 2023 declined one basis point to 4.02 percent, data compiled by Bloomberg show.

The baht is heading for further consolidation, with 34 baht to the dollar expected by the first quarter of 2014 with the US economy picking up and the Federal Reserve's planned tapering.

If the baht hits 34 to the dollar, it would mark a four-year, three-month low, said Kasikornbank's head of capital markets Thiti Tantikulanan. The bank also forecast the local currency will weaken throughout 2014 gradually, weighed down by several uncertainties in both local and overseas markets.

The US central bank plans to start winding down its US$85 billion monthly asset purchase scheme amid a nascent economic recovery, and the pace of the reduction could become more aggressive if the world's largest economy shows stronger signs of a rebound, he said, which should strengthen the dollar.

The local currency's depreciation is still in line with its regional peers. Based on one month of data, the Indonesian rupiah dipped at the quickest pace in Asia, down 4.4% against the greenback, followed by the baht at 2.8%, Malaysian ringgit at 2.3%, and Singapore dollar, Taiwan dollar, and Philippine peso all down 1%.

"The baht has weakened faster than expected amid the lacklustre local economy. We are likely to revise our projection for the end of 2014 from 33 baht to the dollar as it does not price in the political factor," said Mr Thiti.

He said it is difficult to predict foreign capital flows in the local bond market. Outstanding foreign bond-holding in the market stands at 700 billion baht, the same level as the beginning of the year after peaking at 750 billion baht in April. Foreign bond-holding in the local market skyrocketed from 70 billion baht in 2010, driven by the Fed's easing measures.

Foreign investors in the local stock market have pulled out 170 billion baht net year-to-date.

Mr Thiti forecast 2014 would be the busiest year yet for corporate issuance, at 300-350 billion baht, driven by last month's policy rate cut to 2.25%.

Pongpen Ruengvirayudh, the Bank of Thailand deputy governor overseeing monetary stability, said foreign investors are waiting, but she does not expect they will pull out all their investments even if the country is stuck in a tailspin.

"Developments in January are important as they will indicate which direction the country will take," she said. "There have been some capital outflows recently, but the amount is not excessive."

Thailand's baht fell for an 11th day, the longest losing streak on record, on concern capital outflows will quicken amid prolonged political unrest in the country.

The currency touched the weakest level since March 2010, adding to the worst annual loss in 13 years, before a meeting today between the Election Commission and members of the ruling and opposition parties to find ways to ease tensions that have gripped the country since October.

Global funds pulled US$1.3 billion from Thai stocks last month, exchange data show. The central bank will review policy on Jan 22 after official figures showed exports contracted for a third month in November.

"Portfolio flows will be affected given the ongoing political situation," said Saktiandi Supaat, head of foreign-exchange research at Malayan Banking Bhd in Singapore. "The question is whether the central bank is going to make any moves to ease policy."

The baht retreated 0.1% to 32.895 per dollar from Dec 27 as of 9.32am in Bangkok, according to prices from regional banks compiled by Bloomberg. It touched 32.958 on Thursday, the weakest level since March 1, 2010, after losing 6.9 % last year in the biggest yearly drop since 2000.

One-month implied volatility, a measure of expected moves in the exchange rate used to price options, was little changed at 6.91%, according to data compiled by Bloomberg.

Inflation Report

Consumer prices probably rose 1.6% in December from a year earlier, after increasing 1.9% the previous month, according to the median estimate of 17 economists in a Bloomberg survey before data due Thursday.

Overseas shipments declined 4.1% in November from a year earlier, according to a Dec 25 report. The Bank of Thailand cut its one-day bond repurchase rate by a quarter of a percentage point to 2.25% in November.

The anti-government protest group has not agreed to talk to the Election Commission at Thursday's meeting, Commissioner Somchai Srisuthiyakorn told reporters on Wednesday. The protesters have said they plan to shut down large parts of Bangkok starting Jan 13 to pressure the government to delay the Feb 2 general election and allow political reforms to take place.

The baht may pare declines once there is political clarity after the current deadlock is broken, according to a Dec 31 research note from Bank of Tokyo-Mitsubishi UFJ Ltd.

The yield on the 3.625% sovereign bonds due June 2023 was little changed at 3.93%, according to data compiled by Bloomberg.